The #1 mistake health directors can make - Don't forget you’re there to direct the business

By Mark Harrison - October 11, 2018

The health sector is acutely aware of its risk and compliance obligations. From ministerial and departmental oversight, legislative and clinical practices and compliance, record keeping and administration there is a significant burden of reporting to wade through for a director of a health care business – be it public or private. This environment may result in Directors becoming so focused on governance and compliance that they forget to run the underlying health care business.

When I am advising a Board, the biggest challenge is often curbing Directors enthusiasm for governance checklists. I’ve seen several cases where the Board gets so caught up in compliance that they forget what that they are there for - to ensure the continuing operation and success of the core business.

Corporate governance is only part of the Board’s role

Boards are clearly responsible for overall corporate governance. But it can be easy to forget that this is only one of the roles of an effective Board.

There is a risk of focusing on the governance requirements to the detriment of the core business requirements. Governance is important, but Boards can spend a disproportionate amount of time managing risk, compliance and ticking off other governance frameworks rather than making hard business and strategic decisions that go to the survival and success of the organisation. 

You can have good corporate governance without it being the pre-eminent role and responsibility of a Board. Governance must work for, not against, the business.

There is reasonably wide recognition that too focused a view on corporate governance can have negative consequences. The likes of Warren Buffett attribute the decline of IPOs in the US in part to the legal and corporate governance processes required. The reality is that while these processes benefit public market commentators and investors, they impose limitations that can get in the way of running the business. I’ve also experienced that locally, good businesses choosing not to go public to avoid the cost and compliance load they feel will hamper their expansion as they focus on growth opportunities. Equally, for health organisations, focusing too heavily on governance and the associated risk reporting, limits the amount of time that can be applied to strategic and performance initiatives, and therefore the positive health outcomes an organisation achieves.

There’s no doubt that balancing governance with other strategic business needs is challenging - I don’t think many companies or Boards have got it right yet.

Good governance is pragmatic governance

Directors of health organisations are primarily responsible to their stakeholders (whether they be government, staff, patients or investors) - they are their agent when it comes to steering the businesses course. Good governance in theory is effective in achieving this, but too much focus on governance can actually restrict decision-making rather than enhance it. That’s because there’s a tendency to become increasingly risk averse over time. If a business has to revert back to its governance rules and structures to make every strategic decision it is essentially handcuffed by process.

It’s easy to think of governance as being about ticking boxes, but it’s not, it's a mindset of putting stakeholder interests first. Good governance is an environment that enables good people to make really good decisions. It shouldn't restrict them.

It’s important to remember a health business can still produce the right outcomes without ticking every governance box. We must be pragmatic about these things.

If the framework doesn’t work in a particular circumstance, or it’s restricting the Board, then there has to be another way. The real aim is to move the business forward, not comply with tick box governance. It often takes a strong director to put their hand up and suggest to the chair or CEO that the board has to move past the governance issues because they’re acting as a disincentive to positive change.

In the end it comes down to each individual director remembering the reason they’re there. The Board is there to enhance the value of the organisation for all of its stakeholders. Everything else is in support of this aim.

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